I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

How Lyft And Uber Will Raise Taxi Drivers' Incomes, Not Lower Them

Felix Salmon has a nice point over here. That Uber, Lyft and other such services will actually raise taxi drivers’ incomes, not lower them over time. This isn’t what we would initially think of course but in the larger cities, where a medallion is needed to put a cab on the streets this will indeed be true.

The key datapoint came in October, when Uber said in a blog post that when it lowered fares for its UberX product, its drivers’ income actually went up rather than down: in Boston, it rose by 22% per hour, which is a lot of money. The result has been that UberX is now priced near or below prevailing taxi rates in most cities: in Washington DC, for instance, UberX costs 18% less than a taxi. And the drivers of those cars are making significantly more money than they would make if they were driving a cab.

The way to think of it is as follows.

OK, so out in the small towns someone setting up as an Uber driver will indeed be eating into the traffic and thus the revenues of the local cab driver. But the vast majority of cabs are in the big cities. And they almost all use a system of medallions to limit the number of taxis that can operate. These medallions can be fabulously expensive: in NYC currently they cost around $1 million. You’ll not be surprised to find that people who can make a $1 million investment are not found behind the wheel of a cab in the Bronx. Instead those get rented out to a driver for perhaps, as Felix says $75,000 a year. That’s a big bite out of the potential revenues from doing a 12 hour shift looking for fares.

So, along comes Uber, Lyft or any of the other services. They do not have this cost. So, if those new services were to be the same price as a cab ride, or even if they’re cheaper than one, there’s still room for the drivers to make more money than the cab drivers. At which point our old friend, the rising demand for labour comes in. When the demand for labour does indeed rise then, as Karl Marx himself pointed out, in the absence of there being a reserve army of the unemployed then the wages of labour will rise. For the capitalists are now competing between themselves for the profits that can be made by employing that labour and they will thus bid up wages.

Uber can and does offer better incomes than the cab drivers get who are having to pay that $75k a year rent for the medallion. And it’s going to be a reduction of the rent on that medallion that is going to be the equalising factor that raises cab drivers’ wages again. For rise they will have to or they’ll obviously all go off and work for Uber or Lyft instead.

And there’s no doubt at all that this will happen. We’ve seen exactly this happening in Chinese manufacturing wages this past 15 years. As the world has turned to China to do the manufacturing for it then the demand for labour has soared. So much so that manufacturing wages have risen from some $1,000 a year to $6,500 a year in only a decade and a half. Simply and purely because there are now more capitalists wanting to exploit that labour, the competition to make the profits from that exploitation has raised wages.

And writ large this is the story of wages in general in the advanced countries over the past couple of centuries. A hairdresser is no more productive today than one was 100 years ago. But their wages have most definitely risen: because the employers of hairdressers have to compete with the much more productive jobs in other fields for the labour they require. Thus they must raise wages to the level paid in other industries.

I will admit to one little point of amusement here. I have above laid out something that Marx was quite clear about himself. In an era of rising productivity and competitive markets then wages will rise as a result of the competition among capitalists. On this he was indeed correct. But this very point that he was correct upon then invalidates almost everything else he said. For, if wages are going to keep rising then how can it be that the capitalists will be able to grind the faces of the poor into the dust?

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

There is a finite amount of taxi business. If drivers are paying Lyft, Uber, Hailo etc. for access to people who want rides how exactly will it increase their income more than the driver using the GPS dispatch system provided free of charge by taxi companies like Top Cab/City Cab in Boston, MA? Mr. W are you a shareholder?

“If drivers are paying Lyft, Uber, Hailo etc. for access to people who want rides how exactly will it increase their income more than the driver using the GPS dispatch system provided free of charge by taxi companies like Top Cab/City Cab in Boston, MA?”

Because, as I point out in the article, Uber drivers do not have to pay those tens of thouosands a year for acess to a medallion. Taxi driver wages will rise, returns to medallion holders will fall.

An Uber driver needs to buy a car, maintain the car and buy gas. That cuts into the gross revenue which Uber is claiming can be “as much as” $70k – $100k, depending on what random number they through out that day. A car being used for 10+ hours per day to shuttle passengers must be replaced every 2 – 5 years in even the most ideal scenarios. SO depending on the jurisdiction the driver needs $15k – $30k annually just for the car. Then the driver needs gas. That will be $15 – $80 per shift depending on the vehicle type. So another $6k annually, in a best case scenario. Then there are insurance, car wash costs, repairs from accidents for which the car may not be insured, parking, 20% commission to Uber, etc. So at the end of the day the driver is actually netting less than a medallion cab driver, unless, the driver works more than 12 hours per day.

Uber claims that buy simply increasing volume, driver revenues increase. The car can only move through urban gridlock so fast. The minimum UberX fare in SF is $8. A passenger can cross from the Financial District to Russian Hill for $8 but the driver needs to get to the passenger, drop off the passenger then head back for another fare. This can only be done in a best case scenario 3 times per hour for a gross of $24. Again, of that $8 Uber takes 20%.

These numbers are based on driver logs submitted to me by UberX drivers and taxi companies’ electronic trip reporting. A taxi grosses substantially higher annual revenue than an Uber vehicle and the typical taxi driver’s NET REVENUE is substantially higher. This type of data is available if you choose to seek it out. At this stage, people like yourself are blurring the truth with cocktail napkin mathematics. NYC, SF, LA, Chicago and Seattle have real data that you could use. There are reports aplenty of the taxi industry and regulators who have the facts. Just try using some of that technology you so embrace to inform yourself of the realities.

You have to be kidding me. $150 NET, not GROSS. According to Uber a “fully utilized car” is a car driven 7 days a week, 365 days a year. In the best case scenarion the driver earns $70k annually GROSS.

I can’t speak for other cities, although I assume it’s probably the same. But in New York, cab drivers have to pay for gas and car washes, etc. The only difference is that an Uber driver has to pay for his car. That’s why it works well for people who already have cars and weren’t expecting any income from them in the first place.

The cost of these incidental expenses pales in comparison to the $75,000 medallion fee on top of all that. Even if you bought a brand new car each year it would still pale in comparison. Unless you were buying $75,000 cars!

Tim, how flooding the streets with drivers and lowering the rates and getting mostly $2.4 fares that take longer to pick up than complete and are spaced out longer than before will increase drivers income? Are you going by what you were told and read or is this the voice of experience behind the wheel?

Taking into consideration, however, other posts you have made regarding how regulations can impede innovations or new business models, right now you’ve got cities selling medallions for up to $1M and investors renting them out for perhaps $75K per year, a cost born by taxi drivers or companies. Cities are not going to lose that licensing revenue without a fight. Investors, many of whom are likely politically connected, are not going to see the value of their medallions diminish without a fight (and do you want to lay odds on whether some of that $75K in medallion rental revenue doesn’t make its way into local politicians’ pockets?). By the time this kerfuffle is over they’ll be making my wife buy a medallion before she can drop me off at the airport when I take a trip.

Ms Galindo. I think what Mr Worstall is suggesting is that Uber drivers are netting more income even if charging lower fares because whatever amount they pay Uber is significantly less than renting a medallion. He’s assuming their operating costs are lower.

Your investors in taxi medallions are peanuts next to the well-connected investors in Uber, etc.

As for the cost of a medallion, that is only one of the costs of operating a taxi. There are car payments and maintenance, insurance, licensing fees, most of which Uber drivers also have to pay. Then Uber takes 10% out of every ride — how many cab companies clear 10% profit per ride?

Part of Salmon’s mistake was taking Uber’s CEO at his word on driver incomes going up. The drivers themselves did a survey arguing their incomes went down:

http://www.uberpartners.org/survey.htm

As for your “reserve army” of labor, that is where the “ridesharing” drivers come in. Instead of an army of unemployed, you have one of underemployed freelancers who are willing to risk their own vehicles (and their own insurance, and even the risk of not being covered due to the gray areas involved). And remember, the reserve army’s role is not only to depress wages, but to keep the workers in a state of fear and divided against themselves. Seems to be working.

What Uber really does is it routes profits that would otherwise end up at local municipalities and local small businesses to the Uber headquarters (aka Google monopoly). That’s all there is.

Now, add some nice photos and claim it’s for “the general good and better quality of service ” (which it isn’t) – and you have a “ successful” business model.

Uber should follow same rules and regulations as all local transportation companies. These little locals are regulated and heavily taxed, why should Uber be different? It really shouldn’t. Now that would be fair and good for local, not global, economies.

Thing is price must be balanced, once it drops – so does quality and safety of the service provided. Some cities deregulated transportation services – thinking it would benefit the proverbial “everyone”. There you could carry passengers if you had a car, any car – prices surely dropped – but service and safety soon followed. Not to mention pollution, traffic congestion, increased accidents and alike. Keep what’s inherently local – local, there is no need to have an offshore global corporate dispatcher cutting into any of these profits.